Companies: 10,652     total market cap: $139.395 T
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Pegasystems
PEGA
#2435
Rank
$7.47 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$43.69
Share price
-2.08%
Change (1 day)
-18.96%
Change (1 year)
๐Ÿ‘จโ€๐Ÿ’ป Software๐Ÿ‘ฉโ€๐Ÿ’ป Tech
Categories
Pegasystems Inc. is an American software company that develops software for customer relationship management (CRM), digital process automation and business process management (BPM).
  1. Pegasystems
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2025 Q3

Pegasystems - 10-Q quarterly report FY2025 Q3


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
_____________________________________
☒Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2025
OR
☐Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 1-11859 
____________________________
PEGASYSTEMS INC.
(Exact name of Registrant as specified in its charter) 
____________________________
Massachusetts04-2787865
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
225 Wyman Street, Waltham, MA 02451
(Address of principal executive offices, including zip code)
(617) 374-9600
(Registrant’s telephone number, including area code)
____________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, $.01 par value per sharePEGANASDAQ Global Select Market
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes x No ¨            
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
☐Non-accelerated filer☐Smaller reporting company☐Emerging growth company☐
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were 169,722,783 shares of the Registrant’s common stock, $0.01 par value per share, outstanding on October 14, 2025.

Table of Contents

PEGASYSTEMS INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of September 30, 2025 and December 31, 2024
3
Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2025 and 2024
4
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2025 and 2024
5
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2025 and 2024
6
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2025 and 2024
8
Notes to Unaudited Condensed Consolidated Financial Statements
9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
24
Item 3. Quantitative and Qualitative Disclosures About Market Risk
32
Item 4. Controls and Procedures
32
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
33
Item 1A. Risk Factors
33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
33
Item 5. Other Information
33
Item 6. Exhibits
34
Signatures
35

2
Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1.     FINANCIAL STATEMENTS
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, 2025December 31, 2024
Assets
Current assets:
Cash and cash equivalents$148,699 $337,103 
Marketable securities202,663 402,870 
Total cash, cash equivalents, and marketable securities351,362 739,973 
Accounts receivable, net
160,919 305,468 
Unbilled receivables, net
175,732 173,085 
Other current assets123,791 115,178 
Total current assets811,804 1,333,704 
Long-term unbilled receivables, net
105,863 61,407 
Goodwill81,402 81,113 
Other long-term assets293,717 292,049 
Total assets$1,292,786 $1,768,273 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$8,057 $6,226 
Accrued expenses51,857 31,544 
Accrued compensation and related expenses111,650 138,042 
Deferred revenue404,757 423,910 
Convertible senior notes, net— 467,470 
Other current liabilities21,131 18,866 
Total current liabilities597,452 1,086,058 
Long-term operating lease liabilities
62,402 67,647 
Other long-term liabilities36,102 29,088 
Total liabilities695,956 1,182,793 
Commitments and contingencies (Note 17)
Stockholders’ equity:
Preferred stock, 1,000 shares authorized; none issued
— — 
Common stock, 400,000 shares authorized; 170,545 and 172,224 shares issued and outstanding at
September 30, 2025 and December 31, 2024, respectively
1,705 1,722 
Additional paid-in capital370,018 526,102 
Retained earnings233,925 87,901 
Accumulated other comprehensive (loss)(8,818)(30,245)
Total stockholders’ equity596,830 585,480 
Total liabilities and stockholders’ equity$1,292,786 $1,768,273 

See notes to unaudited condensed consolidated financial statements.
3

PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2025202420252024
Revenue
Subscription services$264,198 $224,810 $737,703 $651,143 
Subscription license60,600 45,420 327,118 193,405 
Consulting56,394 54,364 174,639 160,451 
Perpetual license158 456 2,035 1,351 
Total revenue381,350 325,050 1,241,495 1,006,350 
Cost of revenue
Subscription services42,978 36,868 122,616 108,930 
Subscription license314 384 1,060 1,504 
Consulting62,601 59,451 194,235 177,864 
Perpetual license— 3 6 12 
Total cost of revenue105,893 96,706 317,917 288,310 
Gross profit275,457 228,344 923,578 718,040 
Operating expenses
Selling and marketing140,129 127,669 425,329 395,125 
Research and development78,756 74,157 231,826 221,695 
General and administrative42,108 35,694 107,724 84,641 
Litigation settlement, net of recoveries
— — — 32,403 
Restructuring(5)2,485 (38)3,283 
Total operating expenses260,988 240,005 764,841 737,147 
Income (loss) from operations14,469 (11,661)158,737 (19,107)
Foreign currency transaction gain (loss)7,154 (4,405)(12,179)(7,230)
Interest income2,660 6,769 11,243 18,835 
Interest expense(144)(1,639)(1,172)(5,047)
(Loss) on capped call transactions— (689)(223)(667)
Other (loss) income, net(43)— 19,247 1,684 
Income (loss) before (benefit from) provision for income taxes24,096 (11,625)175,653 (11,532)
(Benefit from) provision for income taxes(19,268)2,765 16,790 8,369 
Net income (loss)$43,364 $(14,390)$158,863 $(19,901)
Earnings (loss) per share
Basic$0.25 $(0.08)$0.93 $(0.12)
Diluted$0.24 $(0.08)$0.86 $(0.12)
Weighted-average number of common shares outstanding
Basic170,567171,250171,045170,036
Diluted184,095171,250185,005170,036

See notes to unaudited condensed consolidated financial statements.
4

PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2025202420252024
Net income (loss)$43,364 $(14,390)$158,863 $(19,901)
Other comprehensive (loss) income, net of tax
Unrealized gain (loss) on available-for-sale securities89 660 11 (158)
Foreign currency translation adjustments(4,595)10,204 21,416 4,635 
Total other comprehensive (loss) income, net of tax(4,506)10,864 21,427 4,477 
Comprehensive income (loss)$38,858 $(3,526)$180,290 $(15,424)

See notes to unaudited condensed consolidated financial statements.
5

PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except per share amounts)
Common StockAdditional paid-in capitalRetained earningsAccumulated other comprehensive (loss)Total stockholders’ equity
Number
of shares		Amount
December 31, 2023167,680$1,676 $378,746 $(8,705)$(17,879)$353,838 
Issuance of common stock for stock compensation plans2,2782318,633 — — 18,656 
Issuance of common stock under the employee stock purchase plan6411,757 — — 1,758 
Stock-based compensation——34,781 — — 34,781 
Cash dividends declared ($0.015 per share)
——(2,550)— — (2,550)
Other comprehensive (loss)——— — (4,173)(4,173)
Net (loss)——— (12,124)— (12,124)
March 31, 2024170,022$1,700 $431,367 $(20,829)$(22,052)$390,186 
Issuance of common stock for stock compensation plans65275,478 — — 5,485 
Issuance of common stock under the employee stock purchase plan6411,668 — — 1,669 
Stock-based compensation——36,224 — — 36,224 
Cash dividends declared ($0.015 per share)
——(2,561)— — (2,561)
Other comprehensive (loss)——— — (2,214)(2,214)
Net income——— 6,613 — 6,613 
June 30, 2024170,738$1,708 $472,176 $(14,216)$(24,266)$435,402 
Repurchase of common stock(342)(3)(11,746)— — (11,749)
Issuance of common stock for stock compensation plans1,1621116,456 — — 16,467 
Issuance of common stock under the employee stock purchase plan58—1,789 — — 1,789 
Stock-based compensation——37,213 — — 37,213 
Cash dividends declared ($0.015 per share)
——(2,573)— — (2,573)
Other comprehensive income——— — 10,864 10,864 
Net (loss)——— (14,390)— (14,390)
September 30, 2024171,616$1,716 $513,315 $(28,606)$(13,402)$473,023 
6

PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except per share amounts)
Common StockAdditional paid-in capitalRetained earningsAccumulated other comprehensive (loss)Total stockholders’ equity
Number
of shares		Amount
December 31, 2024172,224$1,722 $526,102 $87,901 $(30,245)$585,480 
Repurchase of common stock(2,920)(30)(118,674)— — (118,704)
Issuance of common stock for stock compensation plans1,756189,736 — — 9,754 
Issuance of common stock under the employee stock purchase plan6421,909 — — 1,911 
Stock-based compensation——41,425 — — 41,425 
Cash dividends declared ($0.015 per share)
——— (2,567)— (2,567)
Other comprehensive income——— — 8,548 8,548 
Net income——— 85,422 — 85,422 
March 31, 2025171,124$1,712 $460,498 $170,756 $(21,697)$611,269 
Repurchase of common stock(3,147)(31)(132,454)— — (132,485)
Issuance of common stock for stock compensation plans3,0863064,876 — — 64,906 
Issuance of common stock under the employee stock purchase plan39—1,816 — — 1,816 
Stock-based compensation——36,730 — — 36,730 
Cash dividends declared ($0.03 per share)
——— (5,156)— (5,156)
Other comprehensive income——— — 17,385 17,385 
Net income——— 30,077 — 30,077 
June 30, 2025171,102$1,711 $431,466 $195,677 $(4,312)$624,542 
Repurchase of common stock(2,675)(27)(142,549)— — (142,576)
Issuance of common stock for stock compensation plans2,078 21 36,082 — — 36,103 
Issuance of common stock under the employee stock purchase plan40 — 1,978 — — 1,978 
Stock-based compensation— — 43,041 — — 43,041 
Cash dividends declared ($0.03 per share)
— — — (5,116)— (5,116)
Other comprehensive (loss)— — — — (4,506)(4,506)
Net income— — — 43,364 — 43,364 
September 30, 2025170,545 $1,705 $370,018 $233,925 $(8,818)$596,830 

See notes to unaudited condensed consolidated financial statements.
7

PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
September 30,
20252024
Operating activities
Net income (loss)$158,863 $(19,901)
Adjustments to reconcile net income (loss) to cash provided by operating activities
Stock-based compensation121,196 108,218 
Amortization of deferred commissions50,494 47,143 
Amortization of intangible assets and depreciation9,414 13,289 
Amortization of right-of-use lease assets8,988 13,748 
Foreign currency transaction loss12,179 7,230 
Loss on capped call transactions223 667 
Deferred income taxes235 (67)
(Accretion) of investments (2,574)(10,944)
(Gain) on investments(19,438)(1,628)
Other non-cash1,526 2,380 
Change in operating assets and liabilities, net5,690 90,562 
Cash provided by operating activities346,796 250,697 
Investing activities
Purchases of investments(238,956)(417,310)
Proceeds from maturities and called investments362,436 206,232 
Sales of investments99,902 — 
Investment in property and equipment(8,485)(4,921)
Cash provided by (used in) investing activities214,897 (215,999)
Financing activities
Repurchases of convertible senior notes(467,864)— 
Dividend payments to stockholders(10,306)(7,626)
Proceeds from employee stock plans129,112 48,811 
Common stock repurchases for tax withholdings for net settlement of equity awards(12,644)(2,987)
Common stock repurchases under stock repurchase program(394,689)(11,249)
Cash (used in) provided by financing activities(756,391)26,949 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash6,971 4,591 
Net (decrease) increase in cash, cash equivalents, and restricted cash(187,727)66,238 
Cash, cash equivalents, and restricted cash, beginning of period341,529 232,827 
Cash, cash equivalents, and restricted cash, end of period$153,802 $299,065 
Cash and cash equivalents$148,699 $287,649 
Restricted cash included in other current assets— 184 
Restricted cash included in other long-term assets5,103 11,232 
Total cash, cash equivalents, and restricted cash$153,802 $299,065 

See notes to unaudited condensed consolidated financial statements.
8
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION
Pegasystems Inc. (together with its subsidiaries, “the Company”) has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all the information required by the generally accepted accounting principles (“GAAP”) in the United States of America (“U.S.”) for complete financial statements and should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2024.
In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented.
All intercompany transactions and balances were eliminated in consolidation. The operating results for the interim periods presented do not necessarily indicate the expected results for fiscal year 2025.
Stock Split
On February 12, 2025, the Company’s Board of Directors approved a two-for-one forward stock split (the “Stock Split”) of the Company’s common stock, par value $0.01 (“Common Stock”), to be effected as a stock dividend and a proportionate increase in the number of authorized shares of Common Stock from 200,000,000 to 400,000,000 (the “Authorized Share Increase”). The Authorized Share Increase was subject to shareholder approval of an amendment to the Company’s Restated Articles of Organization. The requisite shareholder approval was obtained on June 17, 2025. On June 20, 2025, each shareholder of record at the close of business on June 10, 2025 (the “Record Date”) received one additional share of Common Stock for each share of Common Stock held on the Record Date. All share, per share, and equity award information in the Company’s unaudited condensed consolidated financial statements and in the accompanying notes for all periods presented have been recast to reflect the effect of the Stock Split. The shares of Common Stock retained a par value of $0.01 per share. Accordingly, an amount equal to the par value of the increased shares resulting from the Stock Split was reclassified from additional paid-in capital to common stock.
NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS
Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 includes expanded income tax rate reconciliation disclosures, a disaggregation of income taxes paid, and other expanded disclosures. ASU 2023-09 will be effective for the Company for the year ending December 31, 2025. The Company expects the adoption to result in disclosure changes only.
Disaggregation of Income Statement Expenses
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (ASU “2024-03”). Among other items, the requirements include expanded disclosures around employee compensation and selling expenses. ASU 2024-03 will be effective for the Company for the year ending December 31, 2027. The Company is still evaluating the impact of this new guidance on its consolidated financial statements but expects the adoption to result in disclosure changes only.
NOTE 3. MARKETABLE SECURITIES
September 30, 2025December 31, 2024
(in thousands)Amortized CostUnrealized GainsUnrealized LossesFair ValueAmortized CostUnrealized GainsUnrealized LossesFair Value
Government debt$10,500 $11 $(8)$10,503 $11,851 $1 $(19)$11,833 
Corporate debt191,692 561 (93)192,160 391,097 63 (123)391,037 
$202,192 $572 $(101)$202,663 $402,948 $64 $(142)$402,870 
As of September 30, 2025, marketable securities’ maturities ranged from October 2025 to September 2028, with a weighted-average remaining maturity of 1.4 years.
NOTE 4. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE
Receivables
(in thousands)
September 30, 2025December 31, 2024
Accounts receivable, net$160,919 $305,468 
Unbilled receivables, net175,732 173,085 
Long-term unbilled receivables, net
105,863 61,407 
$442,514 $539,960 
9
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Unbilled receivables
Unbilled receivables are client-committed amounts for which revenue recognition precedes billing. Billing is solely subject to the passage of time.
Unbilled receivables by expected collection date:
(Dollars in thousands)
September 30, 2025
1 year or less$175,732 62 %
1-2 years63,974 23 %
2-5 years41,889 15 %
$281,595 100 %
Unbilled receivables by contract effective date:
(Dollars in thousands)
September 30, 2025
2025$135,540 48 %
202486,021 31 %
202352,162 19 %
20223,714 1 %
2021 and prior4,158 1 %
$281,595 100 %
Major clients
Clients that represented 10% or more of the Company’s total accounts receivable and unbilled receivables:
September 30, 2025December 31, 2024
Client A
Accounts receivable*20 %
Unbilled receivables*— %
Total receivables*11 %
Client B
Accounts receivable— %*
Unbilled receivables18 %*
Total receivables12 %*
*Client accounted for less than 10% of total accounts receivable and unbilled receivables.
Contract assets
Contract assets are client-committed amounts for which revenue recognized exceeds the amount billed to the client, and billing is subject to conditions other than the passage of time, such as the completion of a related performance obligation.
(in thousands)
September 30, 2025December 31, 2024
Contract assets (1)
$22,465 $13,498 
Long-term contract assets (2)
28,588 18,321 
$51,053 $31,819 
(1) Included in other current assets.
(2) Included in other long-term assets.
Deferred revenue
Deferred revenue consists of billings made and payments received in advance of revenue recognition.
(in thousands)
September 30, 2025December 31, 2024
Deferred revenue$404,757 $423,910 
Long-term deferred revenue (1)
2,457 2,121 
$407,214 $426,031 
(1) Included in other long-term liabilities.
The change in deferred revenue during the nine months ended September 30, 2025 was primarily due to new billings in advance of revenue recognition and $384 million of revenue recognized during the period included in deferred revenue as of December 31, 2024.
10
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



NOTE 5. DEFERRED COMMISSIONS
(in thousands)
September 30, 2025December 31, 2024
Deferred commissions (1)
$99,423 $105,405 
(1) Included in other long-term assets.
Three Months Ended
September 30,		Nine Months Ended
September 30,
(in thousands)2025202420252024
Amortization of deferred commissions (1)
$16,916 $14,867 $50,494 $47,143 
(1) Included in selling and marketing expenses.
NOTE 6. GOODWILL AND OTHER INTANGIBLES
Goodwill
Nine Months Ended
September 30,
(in thousands)
20252024
January 1,$81,113 $81,611 
Currency translation adjustments289 (43)
September 30,$81,402 $81,568 
Intangibles
Intangible assets are recorded at cost and amortized using the straight-line method over their estimated useful lives.
September 30, 2025
(in thousands)Useful LivesCostAccumulated Amortization
Net Book Value (1)
Client-related
4-10 years
$63,161 $(62,476)$685 
Technology
2-10 years
68,115 (66,971)1,144 
Other
1-5 years
5,361 (5,361)— 
$136,637 $(134,808)$1,829 
(1) Included in other long-term assets.
December 31, 2024
(in thousands)Useful LivesCostAccumulated Amortization
Net Book Value (1)
Client-related
4-10 years
$63,107 $(61,395)$1,712 
Technology
2-10 years
68,115 (65,995)2,120 
Other
1-5 years
5,361 (5,361)— 
$136,583 $(132,751)$3,832 
(1) Included in other long-term assets.
Future estimated amortization of intangible assets:
(in thousands)September 30, 2025
Remainder of 2025$627 
2026874 
2027328 
$1,829 
Amortization of intangible assets:
Three Months Ended
September 30,		Nine Months Ended
September 30,
(in thousands)2025202420252024
Cost of revenue
$284 $357 $975 $1,425 
Selling and marketing
343 343 1,028 1,028 
$627 $700 $2,003 $2,453 

11
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



NOTE 7. OTHER ASSETS AND LIABILITIES
Other current assets
(in thousands)September 30, 2025December 31, 2024
Prepaid expenses$39,970 $38,155 
Income tax receivables56,332 58,359 
Contract assets22,465 13,498 
Indirect tax receivable1,954 2,488 
Capped call transactions— 223 
Restricted cash— 98 
Other3,070 2,357 
$123,791 $115,178 
Other long-term assets
(in thousands)September 30, 2025December 31, 2024
Deferred commissions$99,423 $105,405 
Right of use assets59,397 62,429 
Property and equipment43,036 41,806 
Venture investments20,214 21,234 
Contract assets28,588 18,321 
Income taxes receivable14,270 13,299 
Intangible assets1,829 3,832 
Deferred income taxes3,973 4,268 
Restricted cash5,103 4,328 
Other17,884 17,127 
$293,717 $292,049 
Accrued expenses
(in thousands)September 30, 2025December 31, 2024
Cloud hosting$16,445 $1,802 
Outside professional services18,187 10,639 
Marketing and sales program1,472 2,150 
Income and other taxes4,653 5,055 
Employee related5,692 4,833 
Repurchases of common stock unsettled— 1,500 
Other5,408 5,565 
$51,857 $31,544 
Other current liabilities
(in thousands)September 30, 2025December 31, 2024
Operating lease liabilities$14,424 $14,551 
Dividends payable5,116 2,583 
Other1,591 1,732 
$21,131 $18,866 
Other long-term liabilities
(in thousands)September 30, 2025December 31, 2024
Deferred revenue$2,457 $2,121 
Income taxes payable20,983 15,956 
Other12,662 11,011 
$36,102 $29,088 

12
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



NOTE 8. SEGMENT INFORMATION
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”) in deciding how to allocate resources and assess performance.
The Company derives substantially all of its revenue from the sale and support of one group of similar products and services – software that provides case management, business process management, and real-time decisioning solutions to improve customer engagement and operational excellence in the enterprise applications market. To assess performance, the Company’s CODM, the Chief Executive Officer, reviews financial information on a consolidated basis. Therefore, the Company determined it has one operating segment and one reportable segment. The accounting policies of the Company’s operating segment are the same as those described in "Note 2. Significant Accounting Policies" included in the Annual Report on Form 10-K for the year ended December 31, 2024. The CODM uses consolidated net income (loss) to set financial performance targets, assess performance, and make expense allocation decisions.
Three Months Ended
September 30,		Nine Months Ended
September 30,
(in thousands)2025202420252024
Total revenue$381,350 $325,050 $1,241,495 $1,006,350 
Total cost of revenue105,893 96,706 317,917 288,310 
Selling
119,764 109,952 354,932 331,915 
Marketing
20,365 17,717 70,397 63,210 
Research and development78,756 74,157 231,826 221,695 
General and administrative42,108 35,694 107,724 84,641 
Other segment items, net (1)
(9,632)2,449 (16,954)28,111 
(Benefit from) provision for income taxes(19,268)2,765 16,790 8,369 
Net income (loss)$43,364 $(14,390)$158,863 $(19,901)
(1) Includes Litigation settlement, net of recoveries, Restructuring, Foreign currency transaction gain (loss), Interest income, Interest expense, (Loss) on capped call transactions, and Other (loss) income, net.

Long-lived assets related to the Company’s U.S. and international operations consist of property and equipment, which are included in Other long-term assets in the Company’s consolidated balance sheet:
(in thousands)
September 30, 2025December 31, 2024
U.S.$37,433 87 %$37,405 89 %
International5,603 13 %4,401 11 %
$43,036 100 %$41,806 100 %
NOTE 9. LEASES
On January 1, 2025, the Company relocated its corporate headquarters to 225 Wyman Street, Waltham, Massachusetts.
Expense
Three Months Ended
September 30,		Nine Months Ended
September 30,
(in thousands)2025202420252024
Fixed lease costs$4,128 $6,848 $11,828 $16,381 
Short-term lease costs420 381 1,330 1,334 
Variable lease costs1,351 1,863 4,909 5,235 
$5,899 $9,092 $18,067 $22,950 
Right of use assets and lease liabilities
(in thousands)September 30, 2025December 31, 2024
Right of use assets (1)
$59,397 $62,429 
Operating lease liabilities (2)
$14,424 $14,551 
Long-term operating lease liabilities$62,402 $67,647 
(1) Included in other long-term assets.
(2) Included in other current liabilities.
13
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Weighted-average remaining lease term and discount rate for the Company’s leases were:
September 30, 2025December 31, 2024
Weighted-average remaining lease term5.7 years6.2 years
Weighted-average discount rate (1)
4.9 %4.8 %
(1) The rates implicit in the Company’s leases are not readily determinable. Therefore, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur to borrow an amount equal to the lease payments on a collateralized basis over the lease term in a similar economic environment.
Maturities of lease liabilities:
(in thousands)September 30, 2025
Remainder of 2025$4,615 
202616,971 
202715,494 
202814,357 
202911,343 
20309,754 
Thereafter15,411 
Total lease payments87,945 
Less: imputed interest (1)
(11,119)
$76,826 
(1) Lease liabilities are measured at the present value of the remaining lease payments using a discount rate determined at lease commencement unless the discount rate is updated due to a lease reassessment event.
Cash flow information
Nine Months Ended
September 30,
(in thousands)20252024
Cash paid for operating leases, net of tenant improvement allowances$14,502 $13,249 
Right of use assets recognized for new leases and amendments (non-cash)$4,765 $12,290 
NOTE 10. DEBT
Convertible senior notes and capped calls
Convertible senior notes
In February 2020, the Company issued Convertible Senior Notes (the "Notes") with an aggregate principal of $600 million, due March 1, 2025, in a private placement. No principal payments were due before maturity. The Notes accrued interest at an annual rate of 0.75%, paid semi-annually in arrears on March 1 and September 1, beginning September 1, 2020. The remaining outstanding principal balance on the Notes and accrued interest totaling $469.6 million was repaid in its entirety at maturity during the three months ended March 31, 2025.
Conversion rights
The conversion rate was 14.809 shares of Common stock per $1,000 principal amount of the Notes, representing an initial conversion price of $67.53 per share of Common stock.
Carrying value of the Notes:
(in thousands)September 30, 2025December 31, 2024
Principal$— $467,864 
Unamortized issuance costs— (394)
Convertible senior notes, net$— $467,470 

Interest expense related to the Notes:
Three Months Ended
September 30,		Nine Months Ended
September 30,
(in thousands)2025202420252024
Contractual interest expense (0.75% coupon)
$— $941 $595 $2,825 
Amortization of issuance costs
— 621 394 1,857 
$— $1,562 $989 $4,682 
14
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



The average interest rate on the Notes during the three months ended March 31, 2025 and nine months ended September 30, 2024 was 1.2%.
Capped call transactions
In February 2020, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions initially covered approximately 8.8 million shares (representing the number of shares for which the Notes were initially convertible) of the Company’s Common Stock. As of December 31, 2024, Capped Call Transactions covering approximately 7 million shares were outstanding, and expired upon maturity of the Notes during the three months ended March 31, 2025.
Change in capped call transactions:
Nine Months Ended
September 30,
(in thousands)20252024
January 1,$223 $893 
Fair value adjustment(223)(667)
September 30,$— $226 
Credit facility
In November 2019, and as since amended, the Company entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association. The Company may use borrowings for general corporate purposes and to finance working capital needs. Subject to specific conditions and the agreement of the financial institutions lending the additional amount, the aggregate commitment may be increased to $200 million. The Credit Facility, as amended, contains customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and affiliate transactions. Beginning with the fiscal quarter ended March 31, 2024, the Company must maintain a maximum net consolidated leverage ratio of 3.5 to 1.0 (with a step-up for certain acquisitions) and a minimum consolidated interest coverage ratio of 3.5 to 1.0. Effective as of February 4, 2025, the Credit Facility was amended to extend the expiration date to February 4, 2027. As of September 30, 2025, the Company is compliant with all Credit Facility covenants.
As of September 30, 2025 and December 31, 2024, the Company had letters of credit of $26.7 million and $27.3 million, respectively, under the Credit Facility, however had no cash borrowings.
NOTE 11. RESTRUCTURING
The Company has undertaken the following restructuring activities as it optimizes its go-to-market strategy and reassesses its office space needs:
Three Months Ended
September 30,		Nine Months Ended
September 30,
(in thousands)2025202420252024
Employee severance and related costs
$(11)$(397)$(68)$(634)
Office space reductions (1)
6 2,882 30 3,917 
      Restructuring
$(5)$2,485 $(38)$3,283 
(1) These primarily relate to non-cash operating lease adjustments.
Restructuring activity:
Accrued employee severance and related costs:
Nine Months Ended
September 30,
(in thousands)20252024
January 1,$2,000 $8,095 
Costs incurred(68)(634)
Cash disbursements(1,681)(4,214)
Currency translation adjustments115 (93)
September 30, (1)
$366 $3,154 
(1) Included in accrued compensation and related expenses.
15
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



NOTE 12. FAIR VALUE MEASUREMENTS
Assets and liabilities measured at fair value on a recurring basis
The Company records its cash equivalents, marketable securities, capped call transactions, and venture investments at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants based on assumptions that market participants would use in pricing an asset or liability.
As a basis for classifying the fair value measurements, a three-tier fair value hierarchy, which classifies the fair value measurements based on the inputs used in measuring fair value, was established as follows:
•Level 1 - observable inputs, such as quoted prices in active markets for identical assets or liabilities;
•Level 2 - significant other inputs that are observable either directly or indirectly; and
•Level 3 - significant unobservable inputs with little or no market data, which require the Company to develop its own assumptions.
This hierarchy requires the Company to use observable market data when available and minimize unobservable inputs when determining fair value.
The fair value of the Capped Call Transactions at the end of each reporting period is determined using a Black-Scholes option-pricing model. The valuation model uses various market-based inputs, including stock price, remaining contractual term, expected volatility, risk-free interest rate, and expected dividend yield. The Company applied judgment when determining expected volatility. The Company considered the underlying equity security’s historical and implied volatility levels. The Capped Call Transactions expired upon maturity of the Notes during the three months ended March 31, 2025. The Company’s venture investments are recorded at fair value based on multiple valuation methods, including observable public companies and transaction prices and unobservable inputs, including the volatility, rights, and obligations of the securities the Company holds.
Assets and liabilities measured at fair value on a recurring basis:
September 30, 2025December 31, 2024
(in thousands)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Cash equivalents$8,157 $5,119 $— $13,276 $5,318 $148,926 $— $154,244 
Marketable securities $— $202,663 $— $202,663 $— $402,870 $— $402,870 
Capped Call Transactions
$— $— $— $— $— $223 $— $223 
Venture investments$— $— $20,214 $20,214 $— $— $21,234 $21,234 

Changes in venture investments:
Nine Months Ended
September 30,
(in thousands)20252024
January 1,$21,234 $19,450 
New investments13,129 350 
Sales of investments(33,223)— 
Changes in foreign exchange rates129 106 
Changes in fair value:
included in other (loss) income, net
19,480 1,628 
included in other comprehensive income (loss)
(535)(362)
September 30,$20,214 $21,172 
During the three months ended June 30, 2025, one of the Company’s investees was acquired by a privately held company. As a result, the Company received $33.2 million in consideration for its equity interest in the investee, composed of $22.1 million cash and $11.1 million of an ownership interest in the privately held company, and recognized a $18.7 million gain in excess of cost in other (loss) income, net on the condensed consolidated statements of operations.
The carrying value of certain financial instruments, including receivables and accounts payable, approximates fair value due to their short maturities.
Fair value of the Convertible Senior Notes
The fair value of the Notes outstanding (including the embedded conversion feature) was $463.9 million as of December 31, 2024. The Notes were repaid in full at maturity during the three months ended March 31, 2025.
The fair value was determined based on the Notes’ quoted price in an over-the-counter market on the last trading day of the reporting period and classified within Level 2 in the fair value hierarchy.
16
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



NOTE 13. REVENUE
Geographic revenue
Revenues by geography are determined based on client location:
Three Months Ended
September 30,		Nine Months Ended
September 30,
(Dollars in thousands)
2025202420252024
U.S.$185,132 49 %$156,135 48 %$662,440 54 %$526,332 53 %
Other Americas23,511 6 %28,836 9 %76,884 6 %71,936 7 %
United Kingdom (“U.K.”)53,099 14 %37,593 12 %134,475 11 %108,338 11 %
Europe (excluding U.K.), Middle East, and Africa 64,410 17 %60,048 18 %202,886 16 %175,255 17 %
Asia-Pacific55,198 14 %42,438 13 %164,810 13 %124,489 12 %
$381,350 100 %$325,050 100 %$1,241,495 100 %$1,006,350 100 %
Revenue streams
Three Months Ended
September 30,		Nine Months Ended
September 30,
(in thousands)
2025202420252024
Pega Cloud$184,549 $144,108 $502,415 $409,096 
Maintenance79,649 80,702 235,288 242,047 
Consulting56,394 54,364 174,639 160,451 
Revenue recognized over time320,592 279,174 912,342 811,594 
Subscription license60,600 45,420 327,118 193,405 
Perpetual license158 456 2,035 1,351 
Revenue recognized at a point in time60,758 45,876 329,153 194,756 
Total revenue$381,350 $325,050 $1,241,495 $1,006,350 
Three Months Ended
September 30,		Nine Months Ended
September 30,
(in thousands)2025202420252024
Pega Cloud$184,549 $144,108 $502,415 $409,096 
Maintenance79,649 80,702 235,288 242,047 
Subscription services264,198 224,810 737,703 651,143 
Subscription license60,600 45,420 327,118 193,405 
Subscription324,798 270,230 1,064,821 844,548 
Consulting56,394 54,364 174,639 160,451 
Perpetual license158 456 2,035 1,351 
Total revenue$381,350 $325,050 $1,241,495 $1,006,350 
17
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Remaining performance obligations ("Backlog")
Expected future revenue from existing non-cancellable contracts:
As of September 30, 2025:
(Dollars in thousands)Subscription servicesSubscription licensePerpetual licenseConsultingTotal
Pega CloudMaintenance
1 year or less
$609,511 $199,651 $46,228 $158 $43,979 $899,527 51 %
1-2 years
319,940 71,730 4,404 — 2,478 398,552 23 %
2-3 years
164,125 48,668 746 — 114 213,653 12 %
Greater than 3 years
195,133 40,385 7,220 — 56 242,794 14 %
$1,288,709 $360,434 $58,598 $158 $46,627 $1,754,526 100 %
As of September 30, 2024:
(Dollars in thousands)Subscription servicesSubscription licensePerpetual licenseConsultingTotal
Pega CloudMaintenance
1 year or less
$495,637 $188,905 $38,175 $2,252 $54,203 $779,172 53 %
1-2 years
310,020 63,701 9,686 317 3,062 386,786 26 %
2-3 years
146,877 26,436 3,046 — 2,008 178,367 12 %
Greater than 3 years
112,002 18,854 102 — — 130,958 9 %
$1,064,536 $297,896 $51,009 $2,569 $59,273 $1,475,283 100 %
NOTE 14. STOCKHOLDERS' EQUITY
Stock-based Compensation Expense
Three Months Ended
September 30,		Nine Months Ended
September 30,
(in thousands)2025202420252024
Cost of revenue
$6,626 $6,894 $21,737 $20,558 
Selling and marketing
15,009 14,169 45,168 41,621 
Research and development
7,914 7,308 23,789 22,779 
General and administrative
13,492 8,842 30,502 23,260 
$43,041 $37,213 $121,196 $108,218 
Income tax benefit
$(547)$(512)$(1,700)$(1,377)
As of September 30, 2025, the Company had $129 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 1.8 years.
Grants
Nine Months Ended
September 30, 2025
(in thousands)
Quantity
Total Fair Value
Restricted stock units (1)
2,055$82,098 
Non-qualified stock options
3,296 $53,132 
Performance stock options (2)
1,362 $35,324 
Common stock
18$928 
(1) Includes units issued when employees elect to receive 50% of the employee’s target incentive compensation under the Company’s Corporate Incentive Compensation Plan (the “CICP”) in the form of RSUs instead of cash.
(2) Performance stock options allow the holder to purchase a specified number of Common Stock shares at an exercise price equal to or greater than the shares' fair market value at the grant date. The performance stock options granted in the nine months ended September 30, 2025 vest quarterly over two years, beginning after the achievement of specific performance conditions. The options expire ten years from the grant date.
18
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Stock repurchase program
On April 22, 2025, the Company’s Board of Directors extended the expiration date of the share repurchase program from December 31, 2025 to June 30, 2026 and increased the authorized repurchase amount by $500 million, bringing the total repurchase authorization to $810 million, of which $347.3 million remains available as of September 30, 2025.
During the nine months ended September 30, 2025, the Company repurchased 8.7 million of its common stock for $393.2 million at an average price per share of $44.97. The share repurchase and authorization amounts disclosed within this Form 10-Q exclude the U.S. excise tax on share repurchases. All purchases under this program have been made on the open market.
Stock Split
On June 20, 2025, the Company effected the Stock Split of the Company’s Common Stock described above in “Note 1. Basis of Presentation”. All share and per share amounts in the Company’s unaudited condensed consolidated financial statements and in the accompanying notes for all prior periods presented have been recast to reflect the effect of the Stock Split.
NOTE 15. INCOME TAXES
Effective income tax rate
Nine Months Ended
September 30,
(Dollars in thousands)20252024
(Benefit from) provision for income taxes$16,790 $8,369 
Effective income tax rate10 %(73)%
The Company’s effective income tax rate for the nine months ended September 30, 2025, was impacted by excess tax benefits from stock-based compensation, and by the enactment of the One Big Beautiful Bill Act (“OBBBA”) on July 4, 2025. The OBBBA introduced several U.S. tax law changes, including the ability to immediately expense domestic research and experimental (“R&E”) expenditures starting in 2025, and an election to accelerate any unamortized domestic R&E expenditures over a one or two year period beginning with the 2025 tax year. In accordance with ASC 740, Accounting for Income Taxes, the impacts of the OBBBA are reflected in the Company’s results for the quarter ended September 30, 2025. The enactment of the OBBBA reduced the Company’s forecasted U.S. income tax expense for 2025. However, the changes did not affect the Company’s U.S. deferred tax assets or liabilities, as the Company continues to maintain a full valuation allowance against those balances.
The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. Future realization of deferred tax assets ultimately depends on sufficient taxable income within the available carryback or carryforward periods. The Company’s deferred tax valuation allowance requires significant judgment and has uncertainties, including assumptions about future taxable income based on historical and projected information. In assessing the Company’s ability to realize its net deferred tax assets, the Company considered various factors including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial results to determine whether it is more likely than not that some portion or all of its net deferred tax assets will not be realized.
The Company intends to maintain a valuation allowance on its U.S. and U.K. net deferred tax assets until positive sufficient evidence exists to support their realization. Given the Company’s recent earnings, the Company believes that there is a reasonable possibility that in a near future period sufficient positive evidence may become available to allow the Company to reach a conclusion that a substantial portion of the valuation allowance will no longer be needed. However, the exact timing and amount of the valuation allowance release are subject to significant judgment. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded.
19
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



NOTE 16. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options, RSUs, and Notes.
Calculation of earnings (loss) per share:
Three Months Ended
September 30,		Nine Months Ended
September 30,
(in thousands, except per share amounts) (1)
2025202420252024
Net income (loss)$43,364 $(14,390)$158,863 $(19,901)
Weighted-average common shares outstanding170,567 171,250 171,045 170,036 
Earnings (loss) per share, basic$0.25 $(0.08)$0.93 $(0.12)
Net income (loss)$43,364 $(14,390)$158,863 $(19,901)
Notes - interest expense, net of tax
— — 742 — 
Numerator for diluted EPS $43,364 $(14,390)$159,605 $(19,901)
Weighted-average effect of dilutive securities:
Notes
——1,599—
Stock options10,113—8,971—
RSUs3,415—3,390—
Effect of dilutive securities13,528—13,960—
Weighted-average common shares outstanding, assuming dilution (2) (3) (4)
184,095171,250185,005170,036
Earnings (loss) per share, diluted$0.24 $(0.08)$0.86 $(0.12)
Outstanding anti-dilutive stock options and RSUs (5)
549,0562677,364
(1) The number of shares and per share amounts have been recast for all prior periods presented to reflect the effect of the Company’s Stock Split effected in the form of a stock dividend distributed on June 20, 2025.
(2) All securities are excluded when their inclusion would be anti-dilutive.
(3) The weighted-average shares underlying the conversion options in the Company’s Notes are included using the if-converted method, if dilutive in the period.
(4) The Company’s Capped Call Transactions represented the equivalent number of shares of the Company’s common stock (representing the number of shares for which the Notes are convertible). The Capped Call Transactions are excluded from weighted-average common shares outstanding, assuming dilution, in all periods as their effect would be anti-dilutive.
(5) Outstanding stock options and RSUs that were anti-dilutive under the treasury stock method in the period were excluded from the computation of diluted earnings (loss) per share. These awards may be dilutive in the future.
NOTE 17. COMMITMENTS AND CONTINGENCIES
Commitments
See "Note 9. Leases" for additional information.
Legal proceedings
In addition to the matters below, the Company is or may become involved in a variety of claims, demands, suits, investigations, and proceedings that arise from time to time relating to matters incidental to the ordinary course of the Company’s business, including actions concerning contracts, intellectual property, employment, benefits, and securities matters. Regardless of the outcome, legal disputes can have a material effect on the Company because of defense and settlement costs, diversion of management resources, and other factors.
In addition, as the Company is a party to ongoing litigation, it is at least reasonably possible that the Company’s estimates will change in the near term, and the effect may be material. The Company had no accrued losses for litigation for the below matters as of September 30, 2025 and December 31, 2024.
20
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Appian Corp. v. Pegasystems Inc. & Youyong Zou
The Company is a defendant in litigation brought by Appian in the Circuit Court of Fairfax County, Virginia (the “Court”) titled Appian Corp. v. Pegasystems Inc. & Youyong Zou, No. 2020-07216 (Fairfax Cty. Ct.). On May 9, 2022, the jury rendered its verdict finding that the Company had misappropriated one or more of Appian’s trade secrets, that the Company had violated the Virginia Computer Crimes Act, and that the trade secret misappropriation was willful and malicious. The jury awarded damages of $2,036,860,045 for trade secret misappropriation and $1.00 for violating the Virginia Computer Crimes Act. On September 15, 2022, the circuit court of Fairfax County entered judgment of $2,060,479,287, consisting of the damages previously awarded by the jury plus attorneys’ fees and costs, and stating that the judgment is subject to post-judgment interest at a rate of 6.0% per annum, from the date of the jury verdict (May 9, 2022) as to the amount of the jury verdict and from September 15, 2022 as to the amount of the award of attorneys’ fees and costs. On September 15, 2022, the Company filed a notice of appeal from the judgment. On September 29, 2022, the circuit court of Fairfax County approved a $25,000,000 letter of credit obtained by the Company to secure the judgment and entered an order suspending the judgment during the pendency of the Company’s appeal. A panel of the Court of Appeals of Virginia heard oral arguments on November 15, 2023, and issued a written opinion on July 30, 2024. The Court of Appeals reversed the judgment on Appian’s Virginia Uniform Trade Secrets Act claim and ordered a new trial on that claim. Appian filed a petition for appeal with the Supreme Court of Virginia on August 29, 2024, and the Company filed a response to the petition on October 21, 2024. On March 7, 2025, the Supreme Court of Virginia granted Appian’s petition for appeal and Pega’s assignments of cross-error. The parties have completed briefing before the Supreme Court of Virginia. The Supreme Court of Virginia is scheduled to hear oral argument on the parties’ substantive appellate briefs on October 28, 2025. The Company continues to believe that it did not misappropriate any alleged trade secrets and that its sales of the Company’s products at issue were not caused by, or the result of, any alleged misappropriation of trade secrets. The Company is unable to reasonably estimate possible damages because of, among other things, uncertainty as to the outcome of appellate proceedings and/or any potential new trial resulting from the appellate proceedings.
PS Lit Recovery, LLC v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell and Eminence Fund Long Master, Ltd., Eminence Fund Master, Ltd., Eminence Fund II Master, LP, Eminence Partners Long II, LP, Eminence Fund Leveraged Master, Ltd., Eminence Partners, L.P., Eminence Partners II, L.P. v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell
On December 4, 2024, the shareholders representing approximately 3% of the settlement class that opted out of the court approved settlement in the class action matter captioned City of Fort Lauderdale Police and Firefighters’ Retirement System, Individually and on Behalf of All Others Similarly Situated v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:22-cv-00578-LMB-IDD) (the “Class Action”) filed two lawsuits against the Company, the Company’s chief executive officer, and the Company’s chief operating and financial officer in the United States District Court for the District of Massachusetts. The first is captioned Eminence Fund Long Master, Ltd., Eminence Fund Master, Ltd., Eminence Fund II Master, LP, Eminence Partners Long II, LP, Eminence Fund Leveraged Master, Ltd., Eminence Partners, L.P., and Eminence Partners II, L.P. v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:24-cv-12999-WGY); the second is captioned PS Lit Recovery, LLC v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:24-cv-11220-WGY). The complaints, which are substantially similar, generally allege, among other things, that the defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, and that the individual defendants violated Section 20(a) of the Exchange Act, in each case by allegedly making materially false and/or misleading statements, as well as allegedly failing to disclose material adverse facts about the Company’s business, operations, and prospects, which caused the Company’s securities to trade at artificially inflated prices. The complaints also assert claims for common law fraud and negligent misrepresentation, and seek unspecified damages. The defendants moved to dismiss the complaints on March 13, 2025. The plaintiffs filed a brief in opposition to the motion to dismiss on April 10, 2025. The defendants filed a reply brief in support of the motion to dismiss on April 10, 2025. On May 21, 2025, the Court held a hearing on the motion to dismiss. At the conclusion of the hearing, the Court (i) granted the motion to dismiss as to the plaintiffs’ scheme liability claims; (ii) granted the motion to dismiss as to all claims against Ken Stillwell, except for the plaintiffs’ control person liability claims; and (iii) took the motion to dismiss under advisement as to all other claims. The parties are awaiting a written order ruling on the motion to dismiss as to the remaining claims.
On February 26, 2025, the same shareholders filed two lawsuits against the Company, the Company’s chief executive officer, and the Company’s chief operating and financial officer in Massachusetts Superior Court. The first is captioned Eminence Fund Long Master, Ltd., Eminence Fund Master, Ltd., Eminence Fund II Master, LP, Eminence Partners Long II, LP, Eminence Fund Leveraged Master, Ltd., Eminence Partners, L.P., and Eminence Partners II, L.P. v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case No. 2584CV00541-BLS1); the second is captioned PS Lit Recovery, LLC v. Pegasystems, Inc., Alan Trefler, and Kenneth Stillwell (Case No. 2584CV00539-BLS1). The complaints, which are substantially similar, allege the same state law claims raised in the two federal lawsuits brought by the same plaintiffs in the United States District Court for the District of Massachusetts. On April 14, 2025, the court granted the parties’ joint stipulations to stay both cases pending the resolution of the parallel federal actions and ordered the plaintiffs to file periodic status reports regarding the federal cases showing cause why the state cases should remain open.
The Company believes it has strong defenses to the claims brought against the defendants and intends to defend against these claims vigorously. The Company is unable to reasonably estimate possible damages or a range of possible damages in these matters given the stage of the lawsuits.
In re Pegasystems Inc., Derivative Litigation
Federal court cases
21
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



On November 21, 2022, a lawsuit was filed against the members of the Company’s board of directors, the Company’s chief operating and financial officer and the Company in the United States District Court for the District of Massachusetts, captioned Mary Larkin, derivatively on behalf of nominal defendant Pegasystems Inc. v. Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Alan Trefler, Larry Weber, and Kenneth Stillwell, defendants, and Pegasystems Inc., nominal defendant (Case 1:22-cv-11985). On April 28, 2023, a lawsuit was filed in the United States District Court for the District of Massachusetts by Dag Sagfors, derivatively on behalf of nominal defendant Pegasystems Inc., asserting breach of fiduciary duty and related claims relating to the Virginia Appian litigation against the same defendants as the Larkin lawsuit. On May 17, 2023, the Larkin and Sagfors cases were consolidated (the “Consolidated Action”) and, after defendants moved to dismiss the complaint in the Consolidated Action on December 4, 2024, the plaintiffs moved to voluntarily dismiss the Consolidated Action, and the Court granted the motion to dismiss on December 18, 2024.
The Company separately received confidential demand letters raising substantially the same allegations set forth in the Consolidated Action. On April 12, 2023, the Company’s board of directors (other than Mr. Trefler, who recused himself), formed a committee consisting solely of independent directors, to review, analyze, and investigate the matters raised in the demands and to determine in good faith what actions (if any) were reasonably believed to be appropriate under similar circumstances and reasonably believed to be in the best interests of the Company in response to the demand letters (the “Demand Review Committee”). The Demand Review Committee, with the assistance of independent legal counsel, conducted an extensive investigation of the allegations raised in the demand letters and on October 7, 2024 issued a report concluding that there are no valid claims against the Company’s directors and officers with respect to the matters raised in the demands and that it would not be in the Company’s best interests to pursue litigation against them.
On February 7, 2025, the plaintiffs in the Consolidated Action filed a new complaint against the members of the Company’s board of directors, certain employees of the Company, and the Company in the United States District Court for the District of Massachusetts, captioned Mary Larkin and Dag Sagfors, derivatively on behalf of nominal defendant Pegasystems Inc. v. Alan Trefler, Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Leon Trefler, Larry Weber, Kenneth Stillwell, Don Schuerman, Kerim Akgonul, and Benjamin Baril, (the “Defendants”), and Pegasystems Inc., nominal defendant (Case 1:25-cv-10303). The complaint asserts against Defendants claims for breach of fiduciary duty, unjust enrichment, and violations of the Exchange Act relating to (i) the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above; (ii) alleged misconduct by Company employees alleged in that litigation; and the Class Action, described above. The Defendants filed motions to dismiss the complaint on April 28, 2025. On June 6, 2025, the plaintiffs in the consolidated derivative matter currently pending in Massachusetts Superior Court, Case No. 2484CV01734 (discussed below), moved to intervene in this matter and to stay it pending the resolution of the state derivative matter. The Court held a hearing on defendants’ motions to dismiss and state court plaintiffs’ motion to intervene on July 21, 2025. Following argument, the Court took the motions under advisement.
On October 14, 2025, the parties jointly notified the Court that on October 2, 2025 the Massachusetts Superior Court granted defendants’ motion to dismiss the related state court derivative action (see below) and proposed that the Court refrain from issuing a decision on the motions to dismiss pending a joint submission by the parties of their respective positions on the impact of the state court dismissal on the federal court case within thirty (30) days.
The Company believes it has strong defenses to the claims brought against the defendants and intends to defend against these claims vigorously. The Company is unable to reasonably estimate possible damages or a range of possible damages in these matters given the stage of the lawsuits and there being no specified quantum of damages sought in the complaints.
State court cases
On June 28, 2024, a lawsuit was filed against members of the Company’s board of directors, certain employees of the Company and the Company in the Business Litigation Section of the Superior Court in Suffolk County, Massachusetts, captioned John Dwyer and Ray Gerber, Plaintiffs, v. Alan Trefler, Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Larry Weber, Leon Trefler, Don Schuerman, Kerim Akgonul, and Benjamin Baril, (“Defendants”), and Pegasystems Inc., Nominal Defendant (Case 2484CV01734) (“Dwyer Action”). The complaint generally alleges the Defendants breached their fiduciary duties in connection with alleged misconduct by Company employees alleged in the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, and alleges damages from the approximately $2 billion verdict in the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, the settlement of the Class Action, and litigation costs from various proceedings.
On November 22, 2024, a lawsuit was filed against members of the Company’s board of directors, certain employees of the Company and the Company in the Business Litigation Section of the Superior Court in Suffolk County, Massachusetts, captioned Jayne Birch and Robert Garfield, Plaintiffs, v. Alan Trefler, Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Larry Weber, Kerim Akgonul, Don Schuerman, Leon Trefler, Douglas Kim, John Petronio, Benjamin Baril, and Kenneth Stillwell, (“Defendants”), and Pegasystems Inc., Nominal Defendant (Case 2484CV03076-BLS-1) (“Birch Action”). The complaint generally asserts the same claims asserted in the Dwyer Action.
22
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



On February 12, 2025, after submission by the parties of a stipulation and proposed order, an order was entered consolidating the Dwyer and Birch Actions and approving the schedule for the filing of a consolidated complaint and a motion to dismiss. On March 14, 2025, the plaintiffs filed a consolidated complaint in Case No. 2484CV01734. The consolidated complaint generally alleges the Defendants breached their fiduciary duties in connection with alleged misconduct by Company employees alleged in the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, and in connection with the investigation conducted and the report issued by the Demand Review Committee of the Company’s board regarding the same. The Defendants moved to dismiss the complaint and after briefing by the parties, the Court held a hearing on defendants’ motion on September 4, 2025. On October 2, 2025, the Court granted Defendants’ motion to dismiss and the parties’ are awaiting entry of a judgment of dismissal.
The Company believes it has strong defenses to the claims brought against the defendants and intends to defend against these claims vigorously. The Company is unable to reasonably estimate possible damages or a range of possible damages in these matters given the stage of the lawsuits.

23

ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains or incorporates forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, targets, strategies, intends to, projects, forecasts, guidance, likely, and usually or variations of such words and other similar expressions identify forward-looking statements. These statements represent our views only as of the date the statement was made and are based on current expectations and assumptions.
Forward-looking statements deal with future events and are subject to risks and uncertainties that are difficult to predict, including, but not limited to:
•our future financial performance and business plans;
•the adequacy of our liquidity and capital resources;
•the successful execution of investments in artificial intelligence;
•the continued payment of our quarterly dividends;
•the timing of revenue recognition;
•variation in demand for our products and services, including among clients in the public sector;
•reliance on key personnel;
•reliance on third-party service providers, including hosting providers;
•compliance with our debt obligations and covenants;
•foreign currency exchange rates;
•potential legal and financial liabilities, as well as damage to our reputation, due to cyber-attacks;
•security breaches and security flaws;
•our ability to protect our intellectual property rights, costs associated with defending such rights, intellectual property rights claims, and other related claims by third parties against us, including related costs, damages, and other relief that may be granted against us;
•our ongoing litigation with Appian Corp. and associated legal proceedings;
•our client retention rate; and
•management of our growth.
These risks and others that may cause actual results to differ materially from those expressed in such forward-looking statements are described further in Part I of our Annual Report on Form 10-K for the year ended December 31, 2024, Part II of this Quarterly Report on Form 10-Q, and other filings we make with the SEC.
Investors are cautioned not to place undue reliance on such forward-looking statements, and there are no assurances that the results included in such statements will be achieved. Although subsequent events may cause our view to change, except as required by applicable law, we do not undertake and expressly disclaim any obligation to publicly update or revise these forward-looking statements, whether as the result of new information, future events, or otherwise.
The forward-looking statements in this Quarterly Report represent our views as of October 21, 2025.
NON-GAAP MEASURES
Our non-GAAP financial measures should only be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. We believe that these measures help investors understand our core operating results and prospects, which is consistent with how management measures and forecasts our performance without the effect of often one-time charges and other items outside our normal operations. Management uses these measures to assess the performance of the company's operations and establish operational goals and incentives. They are not a substitute for financial measures prepared under U.S. GAAP. A reconciliation of GAAP and non-GAAP measures is located with each non-GAAP measure.
BUSINESS OVERVIEW
We develop, market, license, host, and support enterprise software that helps organizations optimize decisions and processes in real-time so they can deliver outcomes that transform their business. Our powerful platform for enterprise AI decisioning and workflow automation enables the world’s leading brands and government agencies to hyper-personalize customer experiences, automate customer service, and streamline operations, mission-critical business processes, and workflows. With Pega, our clients can leverage our AI technology and scalable architecture to accelerate their digital transformation. In addition, our sales and client success teams, world-class partners, and clients are able to leverage Pega GenAI BlueprintTM (“Blueprint”) to rapidly prototype and accelerate the development and deployment of applications quickly and collaboratively.
24

Our target clients are Global 2000 organizations and government agencies that require solutions to distinguish themselves in the markets they serve. Our solutions achieve and facilitate differentiation by increasing business agility, driving growth, improving productivity, attracting and retaining customers, and reducing risk. Along with our partners, we deliver solutions tailored by industry.
Performance metrics
We use performance metrics to analyze and assess our overall performance, make operating decisions, and forecast and plan for future periods, including:
Annual contract value (“ACV”)
ACV represents the annualized value of our active contracts as of the measurement date. The contract's total value is divided by its duration in years to calculate ACV. ACV is a performance measure that we believe provides useful information to our management and investors.
310
(Dollars in thousands)
September 30, 2024September 30, 2025Change
Constant Currency Change
Pega Cloud$640,574 $815,370 $174,796 27 %27 %
Maintenance
306,753 296,955 (9,798)(3)%(4)%
Subscription services
947,327 1,112,325 164,998 17 %17 %
Subscription license
412,678 444,601 31,923 8 %8 %
$1,360,005 $1,556,926 $196,921 14 %14 %
Reconciliation of ACV and constant currency ACV
(in millions, except percentages)September 30, 2024September 30, 2025
1-Year Change
ACV$1,360$1,55714 %
Impact of changes in foreign exchange rates— (5)
Constant currency ACV
$1,360$1,55214 %
Note: Constant currency ACV is calculated by applying the September 30, 2024 foreign exchange rates to current period shown.

25

Cash Flow
1819
(Dollars in thousands)
Nine Months Ended
September 30,
Change
20242025
Cash provided by operating activities$250,697 $346,796 38 %
Investment in property and equipment(4,921)(8,485)
Free cash flow (1)
$245,776 $338,311 38 %
Supplemental information (2)
Litigation settlement, net of recoveries$32,403 $— 
Legal fees
9,232 15,022 
Restructuring4,214 1,681 
Interest paid on convertible senior notes3,767 1,754 
Income taxes, net of refunds32,246 7,993 
$81,862 $26,450 
(1) Our non-GAAP free cash flow is defined as cash provided by operating activities less investment in property and equipment. Investment in property and equipment fluctuates in amount and frequency and is significantly affected by the timing and size of investments in our facilities and equipment. We provide information on free cash flow to enable investors to assess our ability to generate cash without incurring additional external financings. This information is not a substitute for financial measures prepared under U.S. GAAP.
(2) The supplemental information discloses items that affect our cash flows and are considered by management not to be representative of our core business operations and ongoing operational performance.
•Litigation settlement, net of recoveries: Cost to settle litigation, net of insurance recoveries, arising from proceedings outside the ordinary course of business. See "Note 20. Commitments And Contingencies" in Item 8 of our Annual Report filed on Form 10-K for the year ended December 31, 2024 and prior filings for further information.
•Legal fees: Legal and related fees arising from proceedings outside the ordinary course of business.
•Restructuring: Restructuring fluctuates in amount and frequency and is significantly affected by the timing and size of our restructuring activities.
•Interest paid on convertible senior notes: In February 2020, we issued convertible senior notes (the “Notes”), due March 1, 2025, in a private placement. The Notes accrued interest at an annual rate of 0.75%, paid semi-annually in arrears on March 1 and September 1. The outstanding Notes were repaid in their entirety at maturity.
•Income taxes, net of refunds: Direct income taxes paid net of refunds received.
26

Remaining performance obligations (“Backlog”)
50
Reconciliation of Backlog and Constant Currency Backlog (Non-GAAP)
(in millions, except percentages)September 30, 2024September 30, 2025
1-Year Growth Rate
Backlog - GAAP$1,475 $1,755 19 %
Impact of changes in foreign exchange rates— (10)
Constant currency backlog$1,475 $1,745 18 %
Note: Constant currency Backlog is calculated by applying the September 30, 2024 foreign exchange rates to current period shown.
CRITICAL ACCOUNTING POLICIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our unaudited condensed consolidated financial statements, which have been prepared following accounting principles generally accepted in the U.S. and the rules and regulations of the SEC for interim financial reporting. Preparing these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions, and expectations of what could occur in the future based on the available information.
For more information about our critical accounting policies, we encourage you to read the discussion in the following locations in our Annual Report on Form 10-K for the year ended December 31, 2024:
•“Critical Accounting Estimates and Significant Judgments” in Item 7; and
•“Note 2. Significant Accounting Policies” in Item 8.
No significant changes have been made to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.
27

RESULTS OF OPERATIONS
Revenue
(Dollars in thousands)Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
2025202420252024
Pega Cloud$184,549 48 %$144,108 44 %$40,441 28 %$502,415 40 %$409,096 41 %$93,319 23 %
Maintenance79,649 21 %80,702 25 %(1,053)(1)%235,288 20 %242,047 24 %(6,759)(3)%
Subscription services264,198 69 %224,810 69 %39,388 18 %737,703 60 %651,143 65 %86,560 13 %
Subscription license60,600 16 %45,420 14 %15,180 33 %327,118 26 %193,405 19 %133,713 69 %
Subscription324,798 85 %270,230 83 %54,568 20 %1,064,821 86 %844,548 84 %220,273 26 %
Consulting56,394 15 %54,364 17 %2,030 4 %174,639 14 %160,451 16 %14,188 9 %
Perpetual license158 — %456 — %(298)(65)%2,035 — %1,351 — %684 51 %
$381,350 100 %$325,050 100 %$56,300 17 %$1,241,495 100 %$1,006,350 100 %$235,145 23 %
•The increases in Pega Cloud revenue in the three and nine months ended September 30, 2025 were primarily due to expanded adoption of Pega Cloud by our clients.
•The decreases in maintenance revenue in the three and nine months ended September 30, 2025 were primarily due to our clients’ shift to Pega Cloud-based offerings, which do not result in maintenance revenue.
•The increases in subscription license revenue in the three and nine months ended September 30, 2025 were primarily due to several large multi-year contracts recognized in revenue in the three and nine months ended September 30, 2025.
•The increases in consulting revenue in the three and nine months ended September 30, 2025 were primarily due to increases in consultant billable hours in our International regions.
Gross profit
(Dollars in thousands)Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
2025202420252024
Pega Cloud$146,811 80 %$113,625 79 %$33,186 29 %$396,450 79 %$319,261 78 %$77,189 24 %
Maintenance74,409 93 %74,317 92 %92 — %218,637 93 %222,952 92 %(4,315)(2)%
Subscription services221,220 84 %187,942 84 %33,278 18 %615,087 83 %542,213 83 %72,874 13 %
Subscription license60,286 99 %45,036 99 %15,250 34 %326,058 100 %191,901 99 %134,157 70 %
Subscription281,506 87 %232,978 86 %48,528 21 %941,145 88 %734,114 87 %207,031 28 %
Consulting(6,207)(11)%(5,087)(9)%(1,120)(22)%(19,596)(11)%(17,413)(11)%(2,183)(13)%
Perpetual license158 100 %453 99 %(295)(65)%2,029 100 %1,339 99 %690 52 %
$275,457 72 %$228,344 70 %$47,113 21 %$923,578 74 %$718,040 71 %$205,538 29 %
•The increases in Pega Cloud gross profit percent in the three and nine months ended September 30, 2025 were primarily due to increased hosting cost efficiencies as Pega Cloud continues to grow and scale and a reallocation of certain headcount from Pega Cloud to Maintenance to align with the change in the nature of their responsibilities.
•The decrease in consulting gross profit percent in the three months ended September 30, 2025 was primarily due to an increase in compensation and benefits of $2 million, and contracted services of $1.3 million. Consulting gross profit percent remained flat in the nine months ended September 30, 2025 as an increase in consultant utilization rates were offset by an increase in compensation and benefits of $9.4 million, and contracted services of $5.5 million.
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Operating expenses
(Dollars in thousands)Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
2025202420252024
Selling and marketing$140,129 $127,669 $12,460 10 %$425,329 $395,125 $30,204 8 %
% of Revenue37 %39 %34 %39 %
Research and development$78,756 $74,157 $4,599 6 %$231,826 $221,695 $10,131 5 %
% of Revenue21 %23 %19 %22 %
General and administrative$42,108 $35,694 $6,414 18 %$107,724 $84,641 $23,083 27 %
% of Revenue11 %11 %9 %8 %
Litigation settlement, net of recoveries
$— $— $— *$— $32,403 $(32,403)*
% of Revenue— %— %— %3 %
Restructuring$(5)$2,485 $(2,490)*$(38)$3,283 $(3,321)*
% of Revenue— %1 %— %— %
* Not meaningful
•The increases in selling and marketing in the three and nine months ended September 30, 2025 were primarily due to increases in compensation and benefits of $10.4 million and $22 million, respectively, attributable to increases in headcount and incentive compensation.
•The increases in research and development in the three and nine months ended September 30, 2025 were primarily due to increases in compensation and benefits of $3.7 million and $7.6 million, respectively, attributable to increases in headcount and incentive compensation.
•The increases in general and administrative in the three and nine months ended September 30, 2025 were primarily due to increases in compensation and benefits of $6.5 million and $12.4 million, respectively, attributable to equity compensation and a reallocation of certain headcount from research and development to general and administrative to align with the change in the nature of their responsibilities. In the nine months ended September 30, 2025, we experienced an increase of $8.8 million in legal fees and related expenses arising from legal proceedings outside the ordinary course of business. We expect to continue to incur additional costs for these proceedings. For additional information, see "Note 17. Commitments and Contingencies" in Part I, Item 1 of this Quarterly Report.
•The decrease in litigation settlement, net of recoveries in the nine months ended September 30, 2025 was primarily due to the cost to settle litigation arising from proceedings outside the ordinary course of business in the nine months ended September 30, 2024. See “Note 20. Commitments and Contingencies” in Item 8 of our Annual Report filed on Form-10K for the year ended December 31, 2024 and prior filings for further information.
Other income and expenses
(Dollars in thousands)Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
2025202420252024
Foreign currency transaction gain (loss)$7,154 $(4,405)$11,559 *$(12,179)$(7,230)$(4,949)(68)%
Interest income2,660 6,769 (4,109)(61)%11,243 18,835 (7,592)(40)%
Interest expense(144)(1,639)1,495 91 %(1,172)(5,047)3,875 77 %
(Loss) on capped call transactions— (689)689 100 %(223)(667)444 67 %
Other (loss) income, net(43)— (43)*19,247 1,684 17,563 1043 %

$9,627 $36 $9,591 26642 %$16,916 $7,575 $9,341 123 %
* Not meaningful

•The changes in foreign currency transaction gain (loss) in the three and nine months ended September 30, 2025 were primarily due to fluctuations in foreign currency exchange rates associated with foreign currency-denominated receivables and intercompany balances held by our subsidiary in the United Kingdom.
•The decreases in interest income in the three and nine months ended September 30, 2025 were primarily due to lower investment balances as a result of the repayment of the Notes at maturity on March 3, 2025.
•The decreases in interest expense in the three and nine months ended September 30, 2025 were primarily due to the repayment of the Notes at maturity on March 3, 2025.
•The changes in (loss) on capped call transactions were due to the expiration of the capped call transactions in the three months ended March 31, 2025.
•The increase in other (loss) income, net in the nine months ended September 30, 2025 was primarily due to the gain from the partial sale of a venture investment. For additional information, see "Note 12. Fair Value Measurements" in Part I, Item 1 of this Quarterly Report.
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(Benefit from) provision for income taxes
Nine Months Ended
September 30,
(Dollars in thousands)20252024
(Benefit from) provision for income taxes$16,790 $8,369 
Effective income tax rate10 %(73)%
Our effective income tax rate for the nine months ended September 30, 2025, was impacted by excess tax benefits from stock-based compensation, and by the enactment of the One Big Beautiful Bill Act (“OBBBA”) on July 4, 2025. The OBBBA introduced several U.S. tax law changes, including the ability to immediately expense domestic research and experimental (“R&E”) expenditures starting in 2025, and an election to accelerate any unamortized domestic R&E expenditures over a one or two year period beginning with the 2025 tax year. In accordance with ASC 740, Accounting for Income Taxes, the impacts of the OBBBA are reflected in our results for the quarter ended September 30, 2025. The enactment of the OBBBA reduced our forecasted U.S. income tax expense for 2025. However, the changes did not affect our U.S. deferred tax assets or liabilities, as we continue to maintain a full valuation allowance against those balances.
The Organization for Economic Cooperation and Development (“OECD”) has introduced new global minimum tax regulations, known as Pillar Two, that was supported by over 130 countries worldwide. Certain aspects of Pillar Two are effective for tax years beginning on or after January 1, 2024. Although the U.S. has not enacted legislation to adopt Pillar Two, certain countries in which we operate have already adopted, or are in the process of adopting, legislation to implement Pillar Two. We do not expect this legislation to have a material impact on our consolidated financial statements. We will continue to monitor and evaluate new legislation and guidance, which could change our current assessment.
LIQUIDITY AND CAPITAL RESOURCES
Nine Months Ended
September 30,
 (in thousands)20252024
Cash provided by (used in):
Operating activities$346,796 $250,697 
Investing activities214,897 (215,999)
Financing activities(756,391)26,949 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash6,971 4,591 
Net (decrease) increase in cash, cash equivalents, and restricted cash$(187,727)$66,238 

(in thousands)
September 30, 2025December 31, 2024
Held in U.S. entities$72,252 $474,509 
Held in foreign entities279,110 265,464 
Total cash, cash equivalents, and marketable securities351,362 739,973 
Restricted cash included in other current assets— 98 
Restricted cash included in other long-term assets5,103 4,328 
Total cash, cash equivalents, marketable securities, and restricted cash
$356,465 $744,399 
We believe that our current cash, marketable securities, cash flow provided by operations, borrowing capacity, and ability to engage in capital market transactions will be sufficient to fund our operations, stock repurchases, and quarterly cash dividends for at least the next 12 months and to meet our known long-term cash requirements. Whether these resources are adequate to meet our liquidity needs beyond that period will depend on our future growth, operating results, and the investments needed to support our operations. We may utilize available funds or seek external financing if we require additional capital resources.
If it becomes necessary or desirable to repatriate foreign funds, we may have to pay federal, state, and local income taxes as well as foreign withholding taxes upon repatriation. However, estimating the taxes we would have to pay is impracticable due to the complexity of income tax laws and regulations.
Operating activities
The change in cash provided by operating activities in the nine months ended September 30, 2025 was primarily due to increase in client collections.
Investing activities
The change in cash provided by (used in) investing activities in the nine months ended September 30, 2025 was primarily due to scheduled maturities of our investments in financial instruments in anticipation of the repayment of the maturing Notes and the consideration received from the sale of a venture investment.
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Financing activities
Debt financing
In February 2020, we issued $600 million in aggregate principal amount of Notes, which matured on March 1, 2025. As of December 31, 2024, we had $468 million in aggregate principal amount of Notes outstanding, which were repaid in their entirety at maturity. For additional information, see "Note 10. Debt" in Part I, Item 1 of this Quarterly Report.
In November 2019, and as since amended, we entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association. Effective as of February 4, 2025, the Credit Facility was amended to extend the expiration date to February 4, 2027.
As of September 30, 2025 and December 31, 2024, we had letters of credit of $26.7 million and $27.3 million, respectively, under the Credit Facility, however had no cash borrowings. For additional information, see "Note 10. Debt" in Part I, Item 1 of this Quarterly Report.
Stock repurchase program
Changes in the remaining stock repurchase authority:
(in thousands) (1)
Nine Months Ended
September 30, 2025
December 31, 2024$240,443 
Authorizations (2)
500,000 
Repurchases (3)
(393,189)
September 30, 2025$347,254 
(1) Amounts presented are exclusive of the U.S. excise tax on share repurchases.
(2) On April 22, 2025, the Company’s Board of Directors extended the expiration date of the share repurchase program from December 31, 2025 to June 30, 2026 and increased the authorized repurchase amount by $500 million.
(3) All purchases under this program have been made on the open market.
Common stock repurchases
Nine Months Ended
September 30,
20252024
(in thousands)SharesAmountSharesAmount
Repurchases paid
8,743$393,189 328$11,249 
Repurchases unpaid at period end
—— 14500 
Stock repurchase program (1)
8,743393,189 34211,749 
Tax withholdings for net settlement of equity awards25012,644 962,987 
8,993$405,833 438$14,736 
(1) Amounts presented are exclusive of the U.S. excise tax on share repurchases.
On June 20, 2025, the Company effected the Stock Split of the Company’s Common Stock described above in “Note 1. Basis of Presentation”. All share and per share amounts in the Company’s unaudited condensed consolidated financial statements and in the accompanying notes for all prior periods presented have been recast to reflect the effect of the Stock Split.
During the nine months ended September 30, 2025 and 2024, instead of receiving cash from the equity holders, we withheld shares with a value of $16.2 million and $3.3 million, respectively, for the exercise price of options. These amounts are not included in the table above.
Dividends
Following the Stock Split and commencing with the third quarter of 2025, we intend to pay a quarterly cash dividend of $0.03 per share, or the equivalent of $0.06 per share prior to the Stock Split. However, the Board of Directors may terminate or modify the dividend program without prior notice.
Nine Months Ended
September 30,
(in thousands)20252024
Dividend payments to stockholders$10,306 $7,626 
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Contractual obligations
As of September 30, 2025, our contractual obligations were:
Payments due by period
(in thousands)Remainder of 202520262027202820292030 and afterOtherTotal
Purchase obligations (1)
$25,483 $163,337 $184,290 $45,931 $493 $510 $— $420,044 
Operating lease obligations
4,615 16,971 15,494 14,357 11,343 25,165 — 87,945 
Venture investment commitments (2)
500 500 — — — — — 1,000 
Liability for uncertain tax positions (3)
— — — — — — 20,983 20,983 
$30,598 $180,808 $199,784 $60,288 $11,836 $25,675 $20,983 $529,972 
(1) Represents the fixed amount owed for purchase obligations including software licenses, hosting services, and sales and marketing programs.
(2) Represents the maximum funding under existing venture investment agreements. Our venture investment agreements generally allow us to withhold unpaid funds at our discretion.
(3) We cannot reasonably estimate the timing of this cash outflow due to uncertainties in the timing of the effective settlement of tax positions.
ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in financial market prices and rates.
Foreign currency exposure
Translation risk
Our international operations’ operating expenses are primarily denominated in foreign currencies. However, our international sales are also primarily denominated in foreign currencies, partially offsetting our foreign currency exposure.
A hypothetical 10% strengthening in the U.S. dollar against other currencies would have resulted in the following:
Nine Months Ended
September 30,
20252024
(Decrease) in revenue(4)%(4)%
(Decrease) in net income(4)%(23)%
Remeasurement risk
We incur transaction gains and losses from the remeasurement of monetary assets and liabilities denominated in currencies other than the functional currency of the entities in which they are recorded.
We are primarily exposed to changes in foreign currency exchange rates associated with the Australian dollar, Euro, and U.S. dollar-denominated cash, cash equivalents, marketable securities, receivables, and intercompany balances held by our U.K. subsidiary, a British pound functional entity.
A hypothetical 10% strengthening in the British pound exchange rate in comparison to the Australian dollar, Euro, and U.S. dollar would have resulted in the following impact:
Nine Months Ended
September 30,
(in thousands)20252024
Foreign currency (loss)$(30,790)$(12,771)
ITEM 4.     CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of September 30, 2025. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2025.
(b) Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2025 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
32

PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in “Note 17. Commitments and Contingencies”, in Part I, Item 1 of this Quarterly Report is incorporated herein by reference.
ITEM 1A.     RISK FACTORS
We encourage you to carefully consider the risk factors identified in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the U.S. Securities and Exchange Commission. These risk factors could materially affect our business, financial condition, and future results and may cause our actual business and financial results to differ materially from those contained in forward-looking statements made in this Quarterly Report on Form 10-Q or elsewhere by management.
ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer purchases of equity securities (1)
Common stock repurchased in the three months ended September 30, 2025:
(in thousands, except per share amounts)
Total Number
of Shares
Purchased (2) (3)
Average Price
Paid per
Share (2)(3)
Total Number
of Shares Purchased as Part of
Publicly Announced Share
Repurchase Program (3)
Approximate Dollar
Value of Shares That
May Yet Be Purchased at Period
End Under Publicly Announced
Share Repurchased Programs (4)(5)
July 1, 2025 - July 31, 2025551$58.50 378$467,254 
August 1, 2025 - August 31, 20252,312$52.28 2,297$347,254 
September 1, 2025 - September 30, 202567$57.32 —$347,254 
2,930$53.57 2,675
(1) For additional information, see "Liquidity and Capital Resources" in Part I, Item 2 of this Quarterly Report.
(2) Includes shares withheld to cover the option exercise price and tax withholding obligations for stock compensation awards subject to net settlement provisions.
(3) All share and per share amounts have been recast to reflect the effect of the Company’s Stock Split on June 20, 2025.
(4) On April 22, 2025, the Company’s Board of Directors extended the expiration date of the share repurchase program from December 31, 2025 to June 30, 2026 and increased the authorized repurchase amount by $500 million.
(5) Amounts presented are exclusive of the U.S. excise tax on share repurchases.
ITEM 5.     OTHER INFORMATION
Rule 10b5-1 and non-rule 10b5-1 trading arrangements
On August 12, 2025, Kenneth Stillwell, our Chief Operating Officer and Chief Financial Officer, entered into a “Rule 10b5-1 trading arrangement” that provides for the sale of 36,000 shares of our common stock. The arrangement will terminate on December 31, 2026, subject to early termination for certain specified events set forth in the arrangement.
Other than as disclosed above, during the three months ended September 30, 2025, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

33

ITEM 6.     EXHIBITS
Exhibit No.DescriptionIncorporation by ReferenceFiled Herewith
FormLocationFiling Date
3.18-K3.1June 18, 2025
3.28-K3.2June 15, 2020
10.1X
31.1X
31.2X
32+
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
X
101.SCH
Inline XBRL Taxonomy Extension Schema Document.
X
101.CAL
Inline XBRL Taxonomy Calculation Linkbase Document.
X
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
X
101.LAB
Inline XBRL Taxonomy Label Linkbase Document.
X
101.PRE
Inline XBRL Taxonomy Presentation Linkbase Document.
X
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
X
+ Indicates that the exhibit is being furnished with this report and is not filed as a part of it.
++ Management contracts and compensatory plans or arrangements.
34

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Pegasystems Inc.
Dated:October 21, 2025By:/s/ KENNETH STILLWELL
Kenneth Stillwell
Chief Operating Officer and Chief Financial Officer
(Principal Financial Officer)


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